Otis Elevator

• IT’s two business in one

— Sales

— Service

Elevator Manufacturing and Sales

• Highly correlated to the building cycle

• Only a few competitors

• A low-margin business

• Several “buyers” involved in the purchase decision -- for example, the building contractor, architect, and building owner

• Competition between companies is based on price, reputation, and ability to satisfy elevator performance specifications and architectural requirements

• High barriers to entry

Elevator Service

• Low barriers to entry; many elevator service companies were started by prior employees of elevator manufacturers.

• Fragmented: thousands of elevator service organizations.

• Stable demand and high profitability.• Elevator manufacturers were awarded 60% to

80% of the service contracts for newly-installed elevators.

• Cost of service is more important as buildings age and competition for tenants intensifies.

• Diagnosis of elevators with microprocessor-based control systems often requires proprietary maintenance devices. The manufacturer was more likely to retain the service contract for these elevators.

Company Overview

• Otis is the industry leader.

• Otis pursues a differentiation strategy. It specializes in elevators for large, complex buildings and sells quality, service and the ability to customize elevators. Its products sell for a premium price.

• Otis has a large, highly-regarded service organization.

• Some Otis elevators have microprocessor-based control systems. These are replacing mechanical elevator control systems, but at a very slow rate.

• Reliability is more important than cost for Otis Elevator’s target customers.

Sales - Measurement of Success

• Bids won / lost

• Market share by region, by product

• By type of building, type of elevator, etc.

• Budgeted and actual profitability

• Comparison of planned and actual installation dates

Service - Measurement of Success

• Service contracts won / lost

• Profitability by customer, by office, and by region

• Response time by office, and by region

• Callbacks by customer and by office

• Time to repair elevator

• Time to repair and quality of repair for each individual mechanic

Service - Impact of OTISLINE (Being Proactive)

• Microcomputers have been embedded in recent products -- information technology has been used to transform the product.

• The OTISLINE system makes it possible for Otis to offer performance contracts to its customers.

• OTISLINE makes it easier for senior management to spot and manage difficult situations, resulting in a higher level of customer satisfaction.

• If the information coming from OTISLINE is used appropriately, the system may enable Otis to become more customer-service oriented.

• OTISLINE significantly transforms information flow within the organization.

• Otis must market OTISLINE’s capabilities. A competitive advantage that is not properly positioned is not a competitive advantage at all.

Sales - OTISLINE Impact

• OTISLINE’s ability to enhance the service business can be a useful selling tool for New Equipment Sales (NES) representatives.

• The New Equipment Sales system uses OTISLINE to shorten the time it takes to record and process a customer order.

Service Delivery Process: Before & After Otisline

Before OTISLINE After OTISLINE

Customer

AnsweringService

Mechanic

Field Office

District

Zone

Region

NAOHeadquarte

rs

Mechanic dispatched

and fixes problem

Mechanic files report

Mechanicpaged

Problem/complaint reported

RoutineReporting

OTISLINE

Mechanic

Customer

Mechanic dispatchedand fixes problem

Mechanicfiles

report

Mechanicpaged

Problem/complaintreported

RoutineReporting

Source: Stoddard, D. and Applegate, L., Otisline Teachning Note, Harvard Business School Case #5-187-086

Discussion of Next Steps

• Finish the NAO roll-out!

• Clearly, exporting the system is a possibility; the company’s leading division is, after all, European operations.

• Selling OTISLINE, or perhaps OTISLINE service, to other noncompeting organizations (e.g., appliance and automobile manufacturers) might be an attractive sideline business.

• Enhancing OTISLINE is an ongoing but significant responsibility. Competitors will undoubtedly respond with similar systems, probably with some enhancements.

• Finally, addressing the organizational and human resource issues is critical. The value of OTISLINE to the company is very compelling. Dealing with organization resistance is an important management challenge.